China's consumer prices returned to growth in October after falling for two straight months, while the decline in factory-gate prices continued to narrow in October, official data showed on Sunday.

Data from the National Bureau of Statistics showed that China's consumer price index, the main gauge of inflation, rose 0.2 percent year-on-year in October, following a 0.3 percent drop in September.

The increase suggests a gradual pickup in domestic demand and business activity as Beijing steps up policy support to shore up growth through to the end of the year.

Analysts said that while short-term holiday effects will fade, the continued rise in core inflation and the narrowing declines in factory-gate prices point to strengthening underlying demand and early signs of a broad-based rebound.

Looking to the fourth quarter, they said China's economy is expected to maintain a steady recovery, supported by stronger policy stimulus and gradual improvements in consumption and industrial activity.

"The CPI rebound reflects both a short-term holiday-driven boost and a longer-term improvement in domestic demand," said Tang Guanghua, an analyst at Shenyin &Wanguo Futures Co.

Tang said that the steady rise in core CPI for the past six months highlights the effectiveness of policies aimed at boosting domestic demand and driving consumption upgrading. "It shows that the intrinsic drivers of demand recovery are accumulating," he said.

According to the NBS, China's producer price index — which measures factory-gate prices — fell 2.1 percent year-on-year in October, easing from a 2.3 percent drop in September. On a month-on-month basis, the PPI increased 0.1 percent in October after remaining flat in September.

"The combination of a positive month-on-month reading and a narrowed year-on-year decline signals that industrial recovery has entered an acceleration channel," Tang said, adding that the PPI is expected to stage a strong rebound as policy effects continue to unfold.

Feng Lin, executive director of the research and development department at Golden Credit Rating International, said the current price level remains generally stable and slightly low, leaving ample room for monetary and fiscal policy to continue supporting consumption and offsetting external volatility.

Xiong Yi, chief economist for China at Deutsche Bank, said he expects more fiscal support in the fourth quarter.

"An additional 500 billion yuan ($70.2 billion) through new policy-based financial instruments will be directed toward key investment projects, while another 500 billion yuan within the local government debt ceiling has been allocated to strengthen local governments' fiscal capacity," he said. "That will provide a strong boost in the fourth quarter and early 2026."

The bank expects a 50-basis-point cut in the reserve requirement ratio in December, followed by another reduction around mid-2026.